Is TiVo next on Cisco's push into homes?

If its history of acquisitiveness is a guide, computer networking king Cisco Systems will likely buy a number of companies as it expands into the consumer electronics market.

Already Cisco has announced plans to spend $6.9 billion on cable set-top maker Scientific-Atlanta. When the deal closes in the next couple of months, it will be the third significant acquisition Silicon Valley-based Cisco has made in the consumer realm.

The question now is, who's next? Will Cisco take a hard look at troubled but well-known TiVo, the maker of digital video recorders? What about Nintendo, maker of video game consoles? Or what about Sling Media, a start-up with technology that lets people watch cable television on their laptops or mobile devices with a broadband connection?

Though Cisco executives certainly won't say who they're looking to buy, there are some hints as to which consumer electronics companies they're considering for partnerships.

According to a source familiar with Cisco and TiVo, there's a "potential for an interesting partnership" to emerge between the two companies. TiVo, the source said, has held discussions with many potential partners.

There's no indication that Cisco is looking to buy TiVo, and details regarding a potential partnership are scant. But Cisco's recent acquisitions do suggest how serious the company is about becoming a major presence in the living room, and TiVo carries weight as a well-known consumer DVR brand. At the same time, Cisco could help TiVo regain the distribution clout it lost when satellite TV provider DirecTV said it was walking away from a longtime partnership with TiVo.

Representatives from both Cisco and TiVo said they would not comment on rumors.

In November 2005, Cisco took its biggest step into the living room. It agreed to buy Scientific-Atlanta, the No. 2 supplier of set-top boxes to cable operators. The deal, once completed, will instantly put Cisco in millions of homes.

If Cisco builds its consumer business the same way it built its enterprise business, it will likely make several more acquisitions, both large and small, to fill in product gaps and improve on its existing technology.

The company's consumer strategy has two main components, Chris Stevens, a vice president and general manager for Cisco's Linksys home networking division, said in a recent interview with CNET News.com.

First, Cisco plans to enhance the Linksys home-networking portfolio with products that increase the speed and ease-of-use of home networks based on IP technology. Second, it wants to sell consumer electronics products, which it hopes will help drive traffic demand for the network.

Cisco has already begun fulfilling this strategy with both the Kiss and Scientific-Atlanta acquisitions.

"If you want to figure out where we are going, just look at the building blocks we are already assembling," Stevens said. "The elements we already have in the portfolio provide us key capabilities that fit into an end-to-end solution."

First on the list of companies that would fit neatly into Cisco's plans is a start-up called Ruckus Wireless, which has developed a small Wi-Fi adapter tailored for video.
The adapter fits into wireless routers or other consumer electronics products, and it uses multiple antennae to steer wireless signals around obstacles.

Ruckus also uses traffic management software to enable service providers to remotely monitor and manage the quality of the service. Because the technology can be easily embedded into existing hardware, Cisco could add it into the Scientific-Atlanta set-top box or use it in the Kiss DVR product.

A stretch? Not really. Microsoft, which is emerging as a key competitor to Cisco in the home entertainment market, is already in this market with the Xbox 360. Gaming has already proved to be a strong application for broadband, so it makes sense that Cisco would want to own a game device to help drive more traffic on its network. With its popular GameBoy product, Nintendo would also provide Cisco an entree into the mobile-handheld market.

Another possible target could be the start-up Sling Media, maker of the Sling Box. Sling essentially turns video feeds into IP packets and sends the signal out again over the Internet.

Then there's TiVo. It has a well-developed software interface, and it has one of the most recognizable brands in the DVR market.

But there are several reasons a partnership with TiVo is much more likely than an acquisition. For one, Cisco already has DVR functionality as part of the set-top boxes it's acquiring from Scientific-Atlanta. Second, TiVo carries a $460 million market capitalization. Third, TiVo suffered a serious blow in distribution when one of its major partners, DirecTV, decided to end a reseller relationship. TiVo now has a distribution deal with Comcast.

"The deal stopper for Cisco would probably be the fact that TiVo is losing customers," said Albert Lin, an analyst with American Technology Research.

More big Cisco home entertainment moves may take some time to happen.

"Cisco will go slowly in digesting Scientific-Atlanta," said Murray Arenson, a senior analyst at Ferris Baker Watts. "There are still a lot of hanging question marks to answer before they go out and acquire anything else in this market."